Low-carbon transition is improbable without carbon pricing

Unidad de excelencia María de Maeztu CEX2019-000940-MThis Letter has a Reply and related content. Please see: Reply to van den Bergh and Botzen: A clash of paradigms over the role of carbon pricing (https://doi.org/10.1073/pnas.2014350117) - Opinion: Why carbon pricing is not sufficient to mitigate climate change-and how "sustainability transition policy" can help (https://doi.org/10.1073/pnas.2004093117)

Climate policy without intertemporal dictatorship : Chichilnisky criterion versus classical utilitarianism in DICE

Unidad de excelencia María de Maeztu MdM-2015-0552Unlike discounting and the damage function, the social welfare function has not received so much attention in the debate on climate economics. An important challenge has been to combine efficiency and equity considerations in a single social welfare framework. The Chichilnisky criterion is one way to resolve this. We consider its implementation in the climate-economy model Dynamic Integrated Climate-Economy (DICE), and compare results for different damage functions, namely the standard one in DICE and the one proposed by Weitzman implying potential large climate damages at high temperature increases. We calculate optimal climate policy for different parameter settings and compare the results with those under the green golden rule (only final utility matters) and classical utilitarianism (no discounting). Optimal emission abatement trajectories turn out to be very different between standard discounted utilitarianism, classical utilitarianism and Chichilnisky specifications. The results are very sensitive to the damage function, the climate sensitivity parameter and especially the "Chichilnisky weight" given to utility of generations in the far future. We discuss conditions and reasons for preferring either classical utilitarianism or the Chichilnisky criterion, and conclude that a critical factor is the time horizon used in climate policy analysis. Adopting sustainable preferences as formalized by the Chichilnisky criterion in climate policy analysis has the advantage that the very long-term implications of greenhouse gases in the atmosphere on the environment and human welfare are not downplayed

A dual-track transition to global carbon pricing

Unilateral climate policies have been unable to achieve intended emissions reductions. We argue that international harmonization of climate policy beyond the Paris Agreement is the only way forward and that global carbon pricing, either through a tax or market, is the best available instrument to manage this. A foundation has already been laid, as current carbon pricing initiatives cover about 20% of global CO2 emissions. Since it limits free-riding by countries/jurisdictions, global carbon pricing is, in principle, behaviourally easier to negotiate than other instruments, such as emission targets or technical standards

Economic Evaluation, Land/Water Use, and Sustainable Nature Conservation of 'De Vechtstreek' Wetlands

Elements of an integrated analysis of a land/water use and nature conservation in "De Vechtstreek" area are presented. This is a river plane composed of patches of lakes and polders, in the centre of The Netherlands. The attention is focused on the economic dimensions of the research. To this end, an overview is given of available information for a set of main wetland function and use categories. This includes estimates of costs and benefits associated with particular activities. These are used in an illustrative cost-benefit analysis of a change to more nature conservation in "De Vechtstreek". The method makes use of the assumption that there are fixed relationships between land/water use area size and values. It is concluded that the nature conservation is a rational economic strategy for discount rates below 13% for a time horizon of 10 years, up to 18% for an infinite time horizon. The approach is aimed to be applied to other scenarios than nature conservation as well, in which case integration with nature science information and models will be pursued, as well as estimation of benefits transfer functions.

Sustainable Nations: What do Aggregate Indicators tell us?

What is a 'sustainable nation’ and how can we identify and rank ‘sustainable nations’? Are nations producing and consuming in a sustainable way? Aggregate indicators have been proposed to answer these questions. This paper quantitatively compares three aggregate indicators of sustainability: the World Bank’s ‘Genuine Savings’ measure, the ‘Ecological Footprint’ and the ‘Environmental Sustainability Index’. It is concluded that rankings of sustainable nations vary significantly among these indicators. Implications of this disagreement for analysis and policy are suggested.Adjusted Net Savings; Ecological Debt; Ecological Footprint; Environmental Sustainability Index; Genuine Savings; Sustainability

Bounded Rationality, Climate Risks, and Insurance: Is There a Market for Natural Disasters?

This paper examines the role of insurances to reduce uncertainty associated with climate change losses for individuals. Of special interest is the value individuals place on the reduction of increased flood risks by insurance coverage. Using rank-dependent utility and prospect theories, risk premiums are estimated under different climate change scenarios for the Netherlands. The study delivers two main insights. First, estimation results suggest that a profitable flood insurance market could be feasible. Second, climate change has the potential to increase the profitability of offering flood insurance.